The Abduzeedo weblog has a detailed guide for achieving an attractive smoke effect using Photoshop.

I wouldn't call it the most true-to-life smoke I've ever seen, but it is attractive, and it provides a nice introduction to how you can use blurs, filters, and gradients to get some pretty interesting results. I'm far from what one might consider a Photoshop expert, but I gave this tutorial a try this afternoon and was very surprised and happy with my results. The screenshots could be a bit larger, but you can make out most of the important details. Alternately, if you want to photograph real smoke, we've covered that, too. — Adam Pash